Tesla Motors Inc (NASDAQ:TSLA) is, according to a tweet from the company’s CEO Elon Musk, going to be releasing a new product at the end of April. There’s been lots of guesses about the nature of that product, with most coming down on the side of home batteries. The one thing that would revolutionize Tesla Motors business isn’t a home battery, it’s insurance, but the company may need Warren Buffett to help.
Self driving cars are the future according to Elon Musk, but Warren Buffett doesn’t necessarily agree. Regardless, Tesla Motors needs to figure out a way to create a world where it’s legal for cars to drive themselves. Warren Buffett needs to figure out how Geico is going to make money when that world exists.
Buffett thinks self-driving cars will kill insurance
In a recent interview Mr. Buffett said that “If it’s a safer way of driving, it’s good for society but bad for your insurance business. If you can cut accidents by 30 or 40 percent we wouldn’t be holding a party at our insurance company.” Self driving cars are coming, and Warren Buffett is known for lying down while the world changes around him.
Berkshire Hathaway and Tesla Motors could team up to build an insurance product to protect the self-driving car, and their drivers. Assuming that the technology is safer, there will be a lag between the lowering of accident numbers and the lowering of insurance premiums. The company in the middle of that equation will generate a supernormal profit.
There’s no point in a company like Berkshire Hathaway or Geico sitting by while the world kills its revenue streams. Jumping into the mix and owning that change is exactly what’s going to make those companies valuable in the future.
Tesla can’t start an insurance business
The thing is, Tesla can’t afford to start its own insurance business right now. It needs the support of a strong insurance house to back its plans. Warren Buffett is already invested in the electric car, with a massive stake in China’s BYD. Buffett’s claims that he doesn’t bet on technology ring false when you see the billions he already has tied up in electric cars.
The expertise and the capital needed to start a self-driving insurance business all exist inside Berkshire Hathaway and Tesla CEO Elon Musk would be happy to have the support of the company, as well as having that most bothersome of questions out of his hair.
Insurance is law
In order to let your car drive itself, you’re going to need someone to insure it for you. That’s the law and Tesla can’t break it. Warren Buffett’s Berkshire Hathaway could, however, make sure that every single Tesla Model 3 is insured, even as they drive themselves along the highway from state to state.
Warren Buffett has an opportunity to make an insurance product with Tesla Motors, and change the entire world of transportation as a result. Bringing together different parts of the Berkshire Hathaway empire from Van Tuyl, to Geico, to BYC, it could become the single greatest move of his investing career.
If he’s not interested, there’s plenty of hedge fund managers out there that own reinsurance businesses. They might be able to finance Elon Musk’s electric insurance ambition if the return looks strong enough.